The Gold Price Remains Elevated as Geopolitical Tensions Continue to Unfold
The gold (XAU) price rose by 0.28% on Monday, bolstered by growing demand for safe-haven assets due to escalating tensions in the Middle East.
The conflict between Israel and Hamas has surpassed 100 days, and Israel maintains its intense military campaign. Meanwhile, Iran took responsibility for airstrikes near the US consulate in Iraq as a response to US attacks in Yemen. In times of economic and geopolitical instability, gold often performs well, offering a counterbalance to the heightened risks associated with more volatile assets. Additionally, market expectations of the Federal Reserve (Fed) to begin cutting rates in Q1 have increased. Markets are currently pricing in a 73% probability of a rate cut by the Fed in March, according to the CME FedWatch tool. Lower interest rates favour gold as they decrease the opportunity cost of investing in non-yielding bullion.
XAU/USD was declining slightly during the Asian and early European sessions. Today, traders should focus on the release of the US Empire State Manufacturing Index at 1:30 p.m. UTC. Higher-than-expected figures will negatively impact XAU/USD, potentially bringing the price below 2,040. However, the long-term bullish trend in XAU/USD may continue if the figures are lower than the forecast. 'Spot gold may retrace to $2,042 per ounce, after its repeated failures to break resistance at $2,060,' said Reuters Analyst Wang Tao.
The Euro Drops as Tensions in the Middle East Continue Escalating
The euro (EUR) was essentially unchanged on Monday as the US market was closed due to a public holiday and the economic calendar was uneventful.
EUR/USD remains in a downtrend despite the market expecting the Federal Reserve (Fed) to cut interest rates aggressively this year. The probability of a 25-basis-point (bps) rate cut from the Fed in Q1 currently stands at 70%, while the chance of the same scenario in the eurozone is just around 20%. Moreover, the European Central Bank (ECB) officials don't sound dovish. Joachim Nagel, the Bundesbank president, said that inflation is still too high and that it's too early to discuss rate cuts. His Austrian colleague, Robert Holzmann, noted the ECB may not begin cutting interest rates this year due to conflicts in the Red Sea, increasing the cost of shipping through the Suez Canal. However, EUR bulls weren't convinced, and the currency continued to slide. The recent weakness of EUR/USD is due to rising safe-haven flows into the US dollar as geopolitical uncertainty in the Middle East rises.
EUR/USD was falling during the Asian and early European trading sessions as worries of more attacks on ships in the Red Sea weighed on risk sentiment. Today, traders should focus on two events: the US Empire State Manufacturing Index at 1:30 p.m. UTC and FOMC member John Waller's speech at 7:00 p.m. UTC. Waller's dovish comment last November brought the US dollar lower and pushed gold higher in a major rally. The technical bias for EUR/USD remains bearish as the pair trades below the important intraday level of 1.09450.
The Japanese Yen Continues to Weaken as the BOJ Is Unlikely to Raise Interest Rates This Month
The Japanese yen (JPY) lost 0.57% on Tuesday as the US dollar strengthened due to rising safe-haven flows caused by military confrontation in the Middle East.
USD/JPY has been in an uptrend since the beginning of the year as the possibility that the Bank of Japan (BOJ) might tighten its monetary policy decreased. Indeed, the latest macroeconomic statistics from Japan have disappointed investors and lowered the chance of a rate hike later this month. Japan's wholesale inflation showed a surprising year-on-year decline, slowing for the twentieth consecutive month. Thus, investors think the BOJ may not be ready to phase out its massive monetary stimulus soon. The Central bank's Governor, Kazuo Ueda, has highlighted the need to keep monetary policy ultra-loose until inflation becomes driven by robust domestic demand and higher wages.
USD/JPY was rising during the Asian and early European trading sessions due to safe-haven flows in the greenback. Today, traders should focus on the release of the US Empire State Manufacturing Index at 1:30 p.m. UTC. Higher-than-expected figures may push USD/JPY higher, above 146.50. However, the mid-term bullish trend in USD/JPY may pause if the figures are lower than the forecast. Also, the FOMC member John Waller's speech at 7:00 p.m. UTC may trigger more volatility in USD/JPY.